This past Friday I drove home to Atlanta after spending a few days at SIG’s Summit in Nashville, TN – my second SIG summit. Read more about the organization here: SIG (Sourcing Interests Group). If you’ve never been to a SIG activity – what is it like? How is it different from other procurement and sourcing focused events available? With 350 attending, it was a good size, and a well-run event. The whole thing was structured into general activities that all attended, as well as tracks broken into separate interest areas – fairly typical for events beyond a certain size.
Here are some of my notes from attending a long list of interesting presentations – I’ve focused this report on Iron Mountain and WCAS.
Iron Mountain session on how to maintain software license compliance, a challenge I’ve written about recently (Read more here!) and something I expect more companies to have to do a better job of. An extremely practical session – lots of tangible advice and to-dos from Iron Mountain’s Robert Stepansky. In fact, I think Iron Mountain should package his approach and offer it as a value-add solution to their clients. In Robert’s experience, staying compliant is a matter of process and technology, and once you have the foundation, he says that the model scales extremely well – in Iron Mountain’s case, Robert and two additional resources manage compliance for Iron Mountain’s close to 15,000 PCs and around 3,000 servers. The latter are huge risk areas according to Robert, and frequently out of compliance.
He advices companies to look at their SQL and DB2 servers first, and also any virtualization that has been implemented – these three areas are hot spots for audits and frequently not compliant. Robert advises all to use a CLM tool to manage EULAs – these change frequently and if you don’t have a snapshot of what they looked like when you bought your software, you are at the mercy of ever-changing revisions. Robert also suggests that you clarify in your purchasing terms areas such as whether or not 3rd parties (like contractors) are allowed to use your software licenses when they perform work on your behalf. Also, any company you have acquired, make sure you audit them immediately – including scrutinizing how their software licenses can be rolled up into the larger organization. Do the licenses survive/extend?
To monitor what is installed and what is used, Robert uses IBM’s Endpoint Manager tool (previously called Big Fix) and then takes things off desktops and servers if the solutions are not in use. These days he says, it is possible to dynamically reallocate software from users to users – and he pulls software back from a user that has been inactive for 90 days and then reassigns this to users in actual need.
WCAS – Welsh Carson Anderson Stowe – a PE portfolio management firm with a $3.5B fund, making it a Top 20 PE organization. The largest (e.g. KKR, Blackstone, Bain) can have funds reaching $15B or even more. WCAS is the largest PE firm focused on healthcare. We've covered WCAS a couple times already here and here. (PRO subscription needed).
WCAS only does control investments – meaning they have control of the board. They have a “simple” game plan for their companies: mainly (57%) focused on operational improvement, secondly WCAS uses spend leverage, all to double EBITDA over a five year time frame and double the value of their investment. In a way what WCAS does is run a boot camp for companies.
Interestingly, they don’t seek to grow companies to the point of IPO – that’s an illiquid exit for them as they would have to pull out their sizeable stake over too long a period of time. The preferred exit is via a sales to a sponsor or strategic buyer, which creates instant and full liquidity.
The life of a PE firm has gotten a lot more competitive – there is no more “winning on the buy” (getting a better deal because you’re smarter than everyone else) and what drives returns these days is mainly operational growth (not leverage). No “last look” at deals anymore either (meaning that you get another shot at improving your bid once the other bidders have submitted their bids). Operational growth requires Fortune 500 talent skills to succeed. The financial markets have lots of “dry powder” right now (funds with money that needs to get deployed) since fund investors expect to see their money working or they want it back. According to WCAS, right now is a good time to sell a company if you have good financials.
Procurement drives the greatest and fastest impact in WCAS experience. Their portfolio vendor spend comes to $5.5B. According to their analysis, every percent saved on procurement spend represents a 2 percent EBITDA increase. In a nutshell, this is their success formula:
- Upgrade the team
- Create a center led organization
- Leverage a sourcing council across the portfolio (30+ companies)
- Develop a two-year plan with 100 day goals
GPOs are leveraged extensively – although without committing spend volumes. WCAS prefers to works with boutique consultants – but not the broad firms. The sourcing council is the least important in WCAS’s experience – as long as talent has been upgraded, procurement centralized, and savings goals set, all is well. WCAS has their own spend analytics tool – as critical to them as to any sourcing effort.
As a PE procurement director, having immediate Board of Director exposure is great – WCAS tries to get its procurement directors to present to directors twice a year – this is powerful as a motivator. Keep the focus: always growing EBITDA!
There are hundreds and hundreds of PE firms out there – with few people anywhere that drive portfolio procurement like WCAS does – a great career path for those so inclined.
Where applicable, preferred suppliers are designated – for example, pallets are only used by a few portfolio firms but in case any new company is acquired that uses pallets, this is leveraged across the portfolio.
In the PE industry, as a rule, equity is carefully distributed to only key contributors – although in some firms the company culture or the CEO is of the opinion that all employees should get some – although seen as a total percentage held by non-investors that percentage is typically the same across firms.
One interesting portfolio or leverage effect is that portfolio firms can get far better account manager access from suppliers than they could on their own – WCAS mentioned FedEx as one example where, thanks to the portfolio, WCAS “members” benefit from the best account managers that FedEx has, which helps optimizing that spend.
These are notes from just two of many interesting company presentations I attended. For those considering attending the next SIG, the caliber of attendees is higher than at most events. You are bound to make a lot of new contacts – perhaps the most valuable take-away from any successful event – as well as pick up interesting, practical ideas on how to improve your own procurement organization.